Progress on renewable energy projects could be stalling because of downstream supply chain risks and the rising price of critical minerals, a report has found.
The demand for critical minerals is forecasted to “rise by up to 500%”, according to insurance provider WTW’s “2023 Renewable Energy Supply Chain Risk Report”.
This surge in demand has come alongside a bevy of supply chain challenges, including human and labour rights abuses in critical sourcing areas as well as a lack of infrastructure and worker capacity.
Surges in commodity prices have “inflated” the cost of infrastructure, it added, while shortages of materials, trade tariffs and a lack of skilled labour have constrained renewable energy projects. Shortages of critical minerals, meanwhile, are contributing to higher costs and longer lead times, making projects less viable in the near term.
WTW’s global renewable energy leader, Stephen Munday, said: “The market opportunity in renewables is vast. Record investment is now going in to secure the energy transition, for example through the US Inflation Reduction Act and similar programmes in the EU. However, getting there won’t be easy. For the first time in years, the cost of renewables is going up instead of down.
“The price of some raw materials has multiplied, driven by inflation and competition for resources. This reverses a long-term downward trend achieved through technological advances and economies of scale, making clean energy transitions more difficult and costly.”
More than four in 10 (44%) of survey respondents named a shortage of raw materials as one of the biggest supply chain factors expected to impact their businesses over the next two years, topping the list of concerns. A further 80% agreed a lack of alternative suppliers had impeded their ability to implement an effective dual or multi-source strategy.
“Even if the political will and economic incentives for renewables are aligned, supply chains may struggle to deliver the infrastructure and equipment needed to make this happen at the required pace,” the report, which consulted 100 risk managers, supply chain and logistics managers and CEOs, said.
“Heavily impacted by the pandemic, they are now being tested by rising raw material costs and capacity constraints,” it added
The production of key raw materials, minerals and components is concentrated in countries affected by conflict and geopolitical tensions, the report added, which could become a “crunch issue”.
To mitigate some of these challenges, companies should carry out reviews with suppliers, improve and clarify the terms of framework agreements, and obtain full visibility of how and where raw materials and equipment are being produced, the report said.
They should also look to diversify supply, recycle components, raw materials and building materials, and build buffer stocks to safeguard against future disruption wherever possible.
WTW’s renewable energy and power leader for Great Britain, Robert Gardner, continued: “Businesses also face increasing reputational risks of sourcing from countries that don’t always uphold the highest labour and human rights standards. Developing trusted partnerships with lead suppliers and industry analysts can help to reduce some of the risks around responsible sourcing and ESG by enhancing the research and development process.
“One of the best ways to mitigate supply chain risks generally is to work with manufacturers, contractors and suppliers that have strong reputations in the market. They are not only more likely to deliver what they promise, but also have the resources needed to speed things up if there is a delay in one location, or reroute deliveries to avoid a logjam.”
Research analyst the Economist Intelligence Unit forecast in December that, despite the need to tackle climate change, the energy transition will proceed “at a snail’s pace” over the next decade. It added that by 2032, fossil fuels will still account for 78% of the global energy mix, down only slightly from 81% in 2022.
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